Part Four
Implementing
Business Ethics
in a Global
Economy
Chapter 10
Business Ethics in
a Global Economy
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Brings together people from countries with
varying cultures, values, laws, and ethical
standards
 International businesspeople must
understand the values, culture, and ethical
standards of their own country
 Must be sensitive to the same in other
countries
Success requires understanding the global
business environment
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 Country cultural values: Are specific to
countries, regions, sects or groups
 National culture: Everything in our
surroundings that is made by people
 Both tangible and intangible
 Each nation has a cultural belief about acceptable
business activities
 Subcultures can be found within many nations
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Geert Hofstede identified four cultural
dimensions that impact the business
environment
 Individualism/collectivism
 Power distance
 Uncertainty avoidance
 Masculinity/femininity
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The unconscious reference to one’s own
cultural values, experiences, and
knowledge
 The idea that “we” differ from “them”
 Common in international business
 We react based on our knowledge
 Accumulated over a lifetime
 Grounded in culture of origin
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The concept that morality varies from one
culture to another
 Believes ‘right’ and ‘wrong’ is defined
differently by each culture
 Can be a rationalization for straying from
one’s cultural values
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Shared across most cultures; often based
on religion, reflected by law
 Desirable common values
 Integrity, family and community unity, equality,
honesty, fidelity, sharing, and unselfishness
 Undesirable common values
 Ignorance, pride and egoism, selfish desires, lust
greed, adultery, theft, deceit, lying, murder,
hypocrisy, slander, and addiction
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 Economic and political events and natural
disasters can affect the global ethical decision
making environment
 Many ethical issues emerge in coping with crises
 The last global recession caused massive
public distrust
 People are now discussing, and even revising,
some fundamental capitalism concepts and
assumptions
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Occurs when corporate profit centers are
unaware of the consequences of their
decisions on the firm as a whole
 No single person can be blamed, the problem
is systemic
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 Adam Smith
 Laissez-faire capitalism
 John Maynard Keynes
 Government can stimulate the private sector
 Milton Friedman
 Return to self-regulating free market system
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1. People have rational preferences among
outcomes that can be identified and
associated with value
2. Individuals seek to maximize utility; firms
seek to maximize profits
3. People act independently on the basis of full
and relevant information
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 Socialism: Advocates that wealth and power
be shared across society, based on the
amount of work expended in production
 Karl Marx
 Social democracy: Private ownership of
property, but a large government
 Formed in the 1940s as an offshoot of socialism
 Bimodal wealth distribution: Many poor
people, concentrated wealth at the top and a
small middle class
 Multinational corporations concentrate control of
the global economy to a few companies
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 Rational economics: Assumes that people
are predictable and base their decisions on
maximizing utility based on resources
 Behavioral economics: Assumes that
humans do not always act rationally due to
genetics, emotions and learned behavior
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© Cengage Learning 2015
Economic Capitalism
Country Differential
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Public companies that operate on a global
scale, without significant ties to any one
nation or region
 The highest level of international business
commitment
 Characterized by a global strategy of focusing
on opportunities throughout the world
 Subject of much ethical debate due to their
size and financial power
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Business for Social
Responsibility (BSR)
 Many MNCs have joined this globally based




resource system
Tracks emerging issues and trends
Provides information on corporate leadership
and best practices
Conducts educational workshops and
training
Assists organizations in developing practical
business ethics tools
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Comparing Countries and
Corporations
Country
GDP (millions in
$ U.S.)
Company
Revenues
(millions $ U.S.)
United States
15,650,000
Royal Dutch Shell
484,489.0
China*
12,380,000
Exxon Mobile
452,926
Japan
5,984,000
Walmart
446,950
Germany
3,367,000
BP
386,463
India
1,947,000
Sinopec Group
375,214
Iran
483,800
China National Petroleum
352,338
Argentina
474,800
State Grid
259,142
Taiwan
474,100
Chevron
245,621
Denmark
309,200
ConocoPhillips
237,272
Greece
255,000
Toyota Motor
235,364
*Note: Because China bases its exchange rate on the fiat, purchasing power parity was used to get a better
comparison of its GDP compared to other countries.
Source: Adapted from “Global 500: Fortune’s Annual Ranking of the World’s Largest Corporations,” CNNMoney , http://money.cnn.com/magazines/fortune/
global500/2012/full_list/ (accessed May 16, 2013). CIA World Fact Book , https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html
(accessed May 16, 2013).
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The International
Monetary Fund (IMF)
 Emerged from Bretton Woods agreement, 1944
 Makes short-term loans to member countries
 Provides foreign currencies for its members
 Promotes responsible business conduct
 Recommended new rules for large firms
which represent the biggest systemic risk
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The United
Nations (UN)
 Founded in 1945; 193 member nations
 Goal to promote world peace, improve intercountry relations, and support better
standards and human rights
 Focuses on environmental and human rights
issues
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The United Nations
Global Compact
 A set of ten principles promoting human
rights, sustainability, and the eradication of
corruption
 Collaborative arrangement between
businesses, governments, NGOs, societies,
and the UN
 Voluntary membership
 Members report on progress toward goals
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Ten Principles of the UN
Global Compact
Human Rights
• Principle 1: Businesses should support and respect the protection of internationally
proclaimed human rights; and
• Principle 2: make sure that they are not complicit in human rights abuses.
Labour
• Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;
• Principle 4: the elimination of all forms of forced and compulsory labour;
• Principle 5: the effective abolition of child labour; and
• Principle 6: the elimination of discrimination in respect of employment and occupation.
Environment
• Principle 7: Businesses should support a precautionary approach to environmental
challenges;
• Principle 8: undertake initiatives to promote greater environmental responsibility; and
• Principle 9: encourage the development and diffusion of environmentally friendly
technologies.
Anti-Corruption
• Principle 10: Businesses should work against corruption in all its forms, including extortion
and bribery.
Source: “The Ten Principles,” United Nations Global Compact, http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html (accessed
May 16, 2013).
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 Established in 1995 at the Uruguay round of
the General Agreement on Tariffs and Trade
(GATT); 159 member and observer nations
 Administers trade agreements, facilitates trade




negotiations and settles trade disputes
Monitors trade policies of member nations
Addresses economic and social issues of many
industries; attempts to reduce trade barriers
Provides legally binding ground rules for commerce
Not all countries agree with the WTO on free trade
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The practice of charging high prices for
products in domestic markets, while
selling the same products in foreign
markets at low prices; often below cost
 Places local firms at a disadvantage
 The U.S. has anti-dumping laws in place
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Key areas of international risk
 Emerging markets carry significant risks for
international investors
 Chinese leadership is promoting
nationalism, which could threaten its
relationships with other countries
 The economic outlook for many Eurozone
countries remains weak
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Global Business Ethics and
Legal Issues
U.S.
Ranking
European
Ranking
1
1
Code of Conduct
2
5
U.S. Antitrust
3
3
Mutual Respect
4
7
U.S. Foreign Corrupt Practices Act (FCPA)
5
4
Conflicts of Interest and Gifts
6
9
Proper Use of Computers
7
8
Important Issues
Insider Trading
6
Financial Integrity
9
Confidentiality
10
Records Management
11
Labor and Employment Law
12
8
Intellectual Property
2
Global Competition Law
10
Global Anti-bribery Requirements
11
Ethics and Values
12
Export Controls
Source: Adapted from
Integrity Interactive
Corporation, “Top
Compliance Concerns of
Global Companies,”
http://www.i2c.com
(accessed May 16, 2013).
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 Bribery’s acceptance varies by country
 Can be a challenge to determine what a bribe is
 Bribery laws and regulations
 The U.S. Foreign Corrupt Practices Act (FCPA)
prohibits companies from paying foreign officials
to keep/obtain business, with exceptions
 The U.K. Bribery Act goes much further
 Most developed countries recognize bribery
is not conducive to business
 However, companies must determine what
constitutes a bribe
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Antitrust laws are meant to encourage fair
competition
 Countries have differing levels of protections
 Can create difficulties in international business
 Vertical system: A channel member controls
the entire business system
 Can occur when MNCs are allowed to grow
unchecked and create a monopoly
 Reduces competition and can put small
competitors out of business
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 Serious Internet crimes have garnered public
attention
 Cyber hacking, Trojan horses, worms and malware
 Privacy violations
 Hacking into people’s personal accounts
 Tracking users through their mobile phone apps
 Company’s use of personal information
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An inherent dignity with equal and
inalienable rights
 The foundation of freedom, justice, and world peace
 Codified in the UN Human Rights Declaration
 Is becoming a serious issue for companies due to
the health care issue
 Many question whether health care is a right or a
privilege
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A major global human rights issue
 Over a billion people lack access to health
care globally
 Patents assign rights to companies, who can
charge what they wish
 Some companies are dropping costly
employee insurance plans, leaving more
people without affordable insurance
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 Many people work outside their homeland
 International firms today have many global
ethical concerns related to labor
 Gender pay equality
 Right to join unions
 Standards of living
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 Living wage: The minimum wage that
workers require to meet basic needs
 Some MNCs choose to outsource to countries that
do not have a minimum wage
 Executive compensation
 A major topic during the last global recession
 Growing global demand for alignment between
managerial performance and compensation
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The belief that consumers should dictate
the economic structure of society
 States that consume goods at an increasing
rate is desirable
 Equates personal happiness with purchasing
and consuming products
 Made-to-break (Planned obsolescence):
Encourages consumers to buy more items
 Detractors use the U.S. as an example of nonsustainable consumption
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 Ethical decision making is essential to
successfully operating a global business
 Some MNCs have created officers/committees
to oversee global compliance issues
 Successful implementation of a global ethics
program requires extensive employee training
 Global firms must tailor programs to
international markets
 Global ethics is not “one size fits all”
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